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MGT132
MANAGEMENT SCHOOL Spring Semester 2019-2020
INTRODUCTION TO FINANCIAL ACCOUNTING 2 hours
There are two sections in this examination paper (section A and section B) and
four questions in total. You must answer THREE questions in total as follows:
Section A consists of ONE COMPULSORY question.
Section B consists of three questions and you must answer TWO of these
questions.
All workings must be shown clearly.
Unless you are told otherwise, you should work to the nearest ￡1.
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SECTION A
Question A1 (Compulsory question)
Alpha plc prepares financial statements to 31 December each year. The company’s
trial balance at 31 December 2019 is as follows:
￡ ￡
Land at cost 500,000
Buildings at cost 600,000
Accumulated depreciation: buildings at 1 January
2019
120,000
Machinery and equipment at cost 394,800
Accumulated depreciation: machinery and
equipment at 1 January 2019
211,500
Inventory at 1 January 2019 175,040
Trade receivables and payables 143,000 242,580
Provision for doubtful debts at 1 January 2019 3,040
Bank 20,780
9% debenture (repayable in 5 years) 240,000
Purchases and sales 941,320 1,996,620
Director’s fees 116,800
Wages and salaries 204,800
General administrative costs 286,880
General distribution costs 214,100
Interest paid 12,440
Dividends paid 70,000
Ordinary shares of ￡1 par value 160,000
Share premium 150,000
Retained earnings at 1 January 2019 514,660
3,659,180 3,659,180
The following information is also available:
The buildings were acquired on 1 January 2011 and are depreciated using
straight-line method over its useful life of 40 years. Machinery and equipment
are depreciated at 25 percent per annum on the reducing balance basis. There
is no residual value for building, machinery and equipment.
Alpha plc revalued the land at 31 December 2019 at ￡560,000.
Depreciation of buildings should be split 70:30 between administrative and
distribution costs. Depreciation of machinery and equipment should be split
20:80 between administrative and distribution costs.
The cost of inventory at 31 December 2019 is ￡196,560, including goods with
an original cost of ￡62,000 which have a net realisable value of ￡50,000.
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Trade receivables include bad debts of ￡4,000 which should be written off. The
provision for doubtful debts is provided at 2 percent of the trade receivables.
Bad debts expenses are to be treated as administrative costs.
The 9% debenture was issued on 1 July 2019. Interest is payable half-yearly
on 30 June and 31 December. The interest of the debenture for the year ended
31 December 2019 has not yet been accounted for.
Director’s fees are to be treated as administrative costs. Wages and salaries
should be split equally between administrative and distribution costs.
Cash dividends of ￡80,000 was declared on 1 October 2019. No entries have
yet been made in relation to this issue.
The taxation for the year is estimated to be ￡40,000, due on 1 April 2020.
Required:
a) Prepare the statement of comprehensive income for the year ended 31
December 2019 and the statement of financial position at 31 December 2019
for Alpha plc, in accordance with International Financial Reporting Standards.
(28 marks)
b) Explain the accrual basis and the matching principle highlighting how it differs
from cash basis.
(12 marks)
(40 marks in total)
END OF SECTION A
